The New New Deal Read online

  But Obama was right, too. His people could do more to accelerate the modernization of the grid—and by harping on the issue, he made sure they did. Some of their ideas would die on the Hill, like a plan to pay states to accelerate transmission projects, and an elaborate scheme to subsidize oversized lines. But some of their ideas would end up in the Recovery Act, like matching grants for smart grid projects, and new transmission lines for federal power agencies.

  “It’s not sexy stuff, but it’s how you start changing the energy world,” Browner says.

  When Obama’s aides recall December 16, they often marvel how little political considerations intruded on the technocratic discussion, for better and for worse. The political team attended along with the policy wonks—in Rahm-speak, Tammany Hall as well as the Aspen Institute—but Obama made it clear he believed that if he got the policy right, the politics would take care of itself. Obama often bristled when aides offered political analysis during policy debates, and it felt especially un-cool during a crisis. Axelrod compares the atmosphere to a MASH unit; the focus was triage. “When people start throwing around phrases like ‘Great Depression,’ it changes the nature of the discussion,” he says. “It’s not a political discussion. It’s a national emergency discussion. When the house is on fire, you put out the fire.” Politics was in the room, but it rarely got much traction.

  For example, Rahm thought state aid was political insanity. When Obama had visited the National Governors Association in Philadelphia in early December, conservative Republicans like Mark Sanford of South Carolina, Haley Barbour of Mississippi, and Rick Perry of Texas had insisted they didn’t even want federal cash. Why help them balance their budgets without pain, so they’d look like heroes when they ran against Obama in 2012? Now Illinois governor Rod Blagojevich had been arrested for trying to sell Obama’s Senate seat. Why bail out these jokers? In the post-TARP anti-bailout climate, even Democratic governors were reluctant to admit they needed aid. In Philadelphia, only Ted Strickland of Ohio had dared to ask Obama publicly to help states avoid drastic cuts in health care and education. “I said, would any governors express a similar view?” Strickland recalls. “It was pretty quiet.”

  The problem was, state budgets really were in flames, whether the governors admitted it or not. The budget guru Bob Greenstein would soon ratchet up his estimate of state shortfalls yet again, this time to over $350 billion, a 350 percent spike in six dizzying weeks.136 California’s bonds carried a higher risk premium than Mexico’s. Thirty governors were already balancing budgets with Hoover-style austerity; in Nevada, Jim Gibbons was trying to slash the state workforce, cut funding for textbooks in half, and eliminate vision care for uninsured children. Ultimately, Obama approved his economic team’s proposal to seek a stunning $200 billion in state aid, putting substance before politics.

  Still, some of Obama’s substance-first policies now seem politically daft. The most damaging was his decision to dribble out the Making Work Pay tax cuts through reduced federal withholding, instead of sending out fat rebate checks that would let people know he had cut their taxes. In the end, most Americans would get an extra $16 per week slipped into their paychecks, but polls would find that fewer than 10 percent of them were aware of the largest middle-class tax cut in a generation.137

  Incredibly, that was the point. Studies in “behavioral economics” have shown that we’re more likely to save money when it arrives in a big chunk. When we receive the same windfall without noticing it, we’re more likely to spend it without thinking. So Summers and the rest of the economic team argued for leaking out the tax cuts without fanfare, to mainline more cash into the economic bloodstream. Or as Rahm later described the strategy: “The geniuses on the economic team wanted the money dripped out so nobody fricking saw it.”

  Behavioral economics had become trendy in the wake of best-sellers like Freakonomics, Animal Spirits, and Nudge.138 And its central challenge to laissez-faire theories—its recognition that real-world human beings are not as economically rational and free markets are not as perfectly efficient as neoclassical models assumed—seemed especially potent after the financial implosion. Most of Obama’s economists had done some behavioral work, and Summers had once begun a paper with the ultimate takedown of rational-actor assumptions: “There are idiots. Look around.” Really, using science to produce change was the essence of Obamaism. The president-elect had read Nudge—coauthored by his friend Cass Sunstein, who would oversee regulation at his OMB—and designing tax cuts not to be noticed was a classic policy nudge to encourage desirable behavior, in this case, spending.

  Politically, though, when you give people a tax cut, you want them to notice it and appreciate it and remember it. This felt like sending flowers to a romantic interest without signing the note. Rahm argued that “we’re denying ourselves an Ed McMahon moment,” the grateful squeal of Publishers Clearinghouse pleasure that would greet an envelope arriving from Obama. As Axelrod puts it, “our political imperatives conflicted with our responsibility to get this economy moving again.”

  Obama decided the economic imperatives came first.

  “The economists thought it was important to do it their way,” Rahm told me. “The president correctly sided with them on policy grounds.” His rolling eyes and gritted teeth did not suggest a deep belief that Obama had in fact decided correctly.

  But Obama’s aides weren’t even sure the political imperatives were clear-cut. The Bush stimulus rebates had been a political dud; replicating them felt dumb as well as false to the Obama brand. Also, Democrats had criticized Bush for spending tens of millions of dollars on letters announcing his rebates, so a publicity campaign calling attention to Obama’s rebates might look hypocritical.139 Deputy budget director Rob Nabors, who had been Obey’s staff director on House Appropriations, remembered how Democrats had ridiculed “Bush’s PR money.”

  Months later, when Republicans were blasting Obama as a tax hiker even as Americans were receiving his tax cuts, Nabors mused to colleagues: Maybe we should’ve included our own PR money.

  “The political theory was if you do the right thing, and you get results, that’s good politics,” Klain reminisced later. “There was an ethos that policy came first, and in this case the politics seemed like a close call.” Then he winced.

  “In retrospect, it just seems stupid.”

  Hindsight always provides an unobstructed view. But even at the time, Klain thought the entire discussion felt “a little Alice in Wonderland-ish.” That night, he called his fellow Clinton White House alumnus Gene Sperling, and said he had just attended the strangest meeting of his career.

  “In the Clinton years, we had a surplus, and we’d have knock-down drag-out battles over $20 million for an education program,” he later recalled. “Now Peter’s saying we’ve got a trillion-dollar deficit, and the president is berating the policy people for saying they’re not spending enough money!” Klain is an ardent defender of the Recovery Act’s substance, but he thinks December 16 should have raised a red flag about the politics. “If we thought it was odd that we were struggling to find ways to spend more money, it probably shouldn’t have surprised us that the American people would find it odd, too,” he says.

  Axelrod never expected the stimulus itself to be so unpopular. But December 16 was a holy-shit moment for him, too. After the meeting, he told Obama he already knew three things about the next two years: Our poll numbers aren’t going to stay this high for long. All of us geniuses are going to start looking like idiots. And we’re going to have a brutal midterm election.

  “We didn’t create this problem, but we’ll be held accountable for it,” Axelrod told the president-elect.

  The Art of the Impossible

  If politics is the art of the possible, Schiliro felt like he was about to explore a new realm. Six weeks to get $800 billion seemed insane. And Obama had decreed that the stimulus would have no congressional earmarks, which had always been used as catnip to build support for controversial bil
ls, giving lawmakers something they could brag about bringing home. Passing something this unimaginably big this unimaginably fast through a pork-free process, Schiliro thought, would be like driving a convertible through a car wash without getting wet.

  “Things that would normally take a month had to get done in two days,” he says.

  There wasn’t a minute to waste. After the Chicago meeting finally broke up, Obama’s advisers rode the El to the airport, and began devising strategy in the back of a crowded train. Schiliro, Furman, and Nabors discussed what they would say the next morning when they briefed Congress about the stimulus. Geithner, Summers, and Romer huddled nearby.

  “No one else on the train has any idea who these clowns are, and they’re plotting economic policy,” Nabors recalls. “I’m like, ‘The treasury secretary just called me over to the corner of an El to figure out what should be in the Recovery Act.’ That’s when I knew this was a pretty remarkable thing we were trying to do.”

  As it prepared to defy the laws of legislative gravity, the Obama team could at least draw on a wealth of congressional experience. The president-elect may have campaigned as an outsider, but he stocked his administration with Capitol Hill insiders.

  Of course, Obama and Biden both came from the Senate, and while Obama had barely located the bathrooms before launching his presidential campaign, Biden had spent thirty-six years in the institution. (Obama once joked with him: “Look, you were a senator. I was never a senator.”) Clinton, Daschle, and Interior Secretary Ken Salazar were also former senators, while Emanuel, Solis, and LaHood came directly from the House. Orszag, surprisingly political for a numbers geek, had been the congressional budget watchdog. Obama’s White House staff was also teeming with former legislative aides, including Carol Browner; Ron Klain; Rob Nabors; senior adviser Pete Rouse, known as “the 101st senator” when he worked for Daschle; Domestic Policy Council head Melody Barnes, a longtime Ted Kennedy aide; and Jim Messina, who was like a son to Senate Finance chairman Max Baucus of Montana. Schiliro’s boss of twenty-five years, Henry Waxman of California, had just taken over the House Energy and Commerce Committee. Obama’s people would not have to introduce themselves to the key players on Capitol Hill.

  Obama could also take heart in the new balance of power there. Pelosi and Reid were both strong allies; Reid had privately encouraged him to take on Hillary, and Pelosi had been secretly pleased when he did. Now Democrats had gained twenty-one seats for a commanding 257–178 advantage in the House, where the hyper-partisan, majority-rules culture would assure Pelosi tremendous power to move legislation. “They didn’t even have to ask us to turn the lights on,” says Republican congressman Mike Rogers of Michigan. Democrats had also picked up seven seats in the Senate for a 58–41 lead, with comedian Al Franken hoping to claim an eighth in a Minnesota recount. The Senate had a less majoritarian ethic, and Reid remained short of the sixty votes he needed to block united Republican filibusters. But every vote counted, and Reid wanted all the allies he could get.

  That included independent senator Joe Lieberman of Connecticut, the 2004 Democratic vice presidential nominee who had quit the party in 2006 and stumped for McCain in 2008. Liberals ached to see him punished for questioning Obama’s patriotism—not to mention showing up on Fox News every few minutes to whack the Democratic Party—and Reid did ask if he would give up his Homeland Security Committee chairmanship. Lieberman refused, and threatened to caucus with the Republicans if he were stripped of his gavel. At Obama’s request, Senate Democrats voted to let Lieberman remain chairman. So he stayed on their side of the aisle and pledged to help out when he could, which would start to pay dividends quickly.

  “What made that happen was the president saying he didn’t want any recriminations,” Lieberman says. “A different kind of person would have been vindictive.”

  Obama was the kind of person who liked to reach out. And the United States isn’t a parliamentary democracy, where the head of state puts forth an agenda, his party dutifully passes it, and the nation judges its results. Even with numbers on his side, he had no intention of trying to shove a detailed stimulus plan down the throats of Democratic leaders. Bill Clinton had tried that with Hillarycare—“the stone tablets approach,” Axelrod calls it—and it hadn’t ended well. Bush’s strong-arming of the Republican Congress hadn’t ended any better, producing policy fiascoes and a Democratic political revival. Obama told his transition aides he wanted them to listen as well as talk.

  “For reporters, either the president is dictating to Congress or Congress is dictating to the president,” Schiliro says. “He felt very strongly that he wanted a different model.”

  Obama felt no need to control every subsection of the stimulus, and he figured his old colleagues would act faster if they felt a sense of ownership. Even if he had wanted to write the Recovery Act, his transition team didn’t have the manpower to do it. Rahm was also leery of making formal requests that would make Obama look weak if Congress rejected them.

  So Schiliro settled on an 80-20 strategy: If the stimulus included at least 80 percent of what Obama wanted, Congress could fill the other 20 percent with its own priorities. There wasn’t time to haggle over every dollar, and Obama wanted lawmakers on his side. It would be impossible to make change without them.

  “We don’t want to come in as conquering heroes,” Schiliro told the team.

  Rob Nabors had spent eight years at David Obey’s side, and was still technically on Obey’s payroll. A few weeks earlier, he had staffed Obey on a House stimulus bill. But now he was an Obama aide, briefing his old boss on Obama’s stimulus bill, reading a list of line items while Obey grunted and grumbled.

  “He kept throwing things back in my face that we had worked on together,” Nabors recalls. “Just Obey being Obey.”

  Nabors and Obey were like a May-December odd couple—the baby-faced, affable, thirty-seven-year-old African American staffer and the professor-bearded, irascible, seventy-year-old Wisconsin congressman. Obey was a throwback to the high-handed, hard-drinking Democratic “old bulls” who once dominated Congress, smart and cantankerous, a no-filter, equal-opportunity denigrator who had spent four decades on Capitol Hill. Nabors was a mild-mannered, self-effacing number cruncher who listened more than he spoke, but projected an aura of quiet authority when he did speak. He was the son of an Army general, and as Obey often said, Nabors didn’t take any crap.

  Nevertheless, Obey was giving him some.

  “You know, this would be much easier if you gave me that piece of paper,” Obey snapped.

  “I’m not giving you my piece of paper,” Nabors parried. “This is official transition paper.” Nabors had noticed Obey peeking at legislative language of his own; apparently, he had started work on a draft without waiting for Obama.

  “You can look at your own piece of paper,” Nabors said with a grin.

  Nabors, Furman, and Schiliro now had a plan to pitch, even though it existed only as a spreadsheet on Nabors’s laptop, and they needed to unite Hill Democrats around that plan in a hurry. Obama wanted a bipartisan bill with bipartisan ideas, and his aides planned to reach out to Republicans once there was a basic consensus among Democrats. But with such a compressed schedule, they didn’t think they had time for the interminable back-and-forth of a standard legislative process. Their mission was to get Democrats to embrace Obama’s plan and write it into a bill.

  Yet they did not want to present it as a definitive plan. In a marathon series of briefings for Democratic staffers, they described their work as ideas, suggestions, the start of a process. They said things like: “The president-elect suggests that $25 billion would be a good number for school modernization.” Or: “The president-elect thinks $6.5 billion for neighborhood stabilization would help address foreclosures.” They avoided words like “ask” or “request.” They did not hand out any paper.

  This cagey approach helped fuel the myth that Obama punted the Recovery Act to Congress. He never submitted a formal draft, and man
y Hill Democrats grew frustrated with his team’s refusal to nail down exactly what he wanted and what he needed in the bill. Some saw his nonplan plan as a page out of the Bush playbook, a passive-aggressive effort to direct policy without leaving fingerprints.

  “In the olden days, which weren’t that long ago, presidents used to send up proposals,” says one senior House aide. “They used to say, ‘I want this, this, and this, and this is the language I want.’ You don’t own it until you put it on paper.”

  As one Senate staffer puts it, most legislators are like kids: They say they want freedom, but deep down they crave guidance. So Democrats who had spent years demanding respect from the White House quickly decided that Obama’s team was too deferential. “People were like: Just tell us what the hell you want!” recalls Tom Perriello, a Virginia Democrat who had just been elected to the House.

  But Obama’s plan was real, even if Congress never saw it on paper, and it immediately became the foundation for the Recovery Act. His team’s briefings, while strictly verbal, laid out general goals as well as specific funding ranges for specific programs. On December 19, for instance, Nabors and Furman held a marathon session of back-to-back meetings in the Capitol basement with rotating groups of staffers, laying out Obama’s vision—uh, suggested vision—for the six major spending areas: energy, education, health care, infrastructure, protecting the vulnerable, and “other.” The plan—whether or not they called it a plan—got a friendly reception.

  As the team reported in a four-page memo the next day: “Overall, congressional staff appeared accepting of most of our numbers.”140 On energy, there was “general support for most of the elements and packaging.” On health care, transition aides had already been speaking with the Hill, and “work is reasonably far advanced on a package looking a lot like what we have proposed.” On the vulnerable, “they are largely taking our proposals and refining them.” On taxes, “House and Senate staff largely view their role as drafting the Obama tax proposals and refining the details.”